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Expressions of Interest – Should we get together?

Monday January 18th, 2010

Professor Andrew Cox, Advisory Board Chairman, International Institute for Purchasing and Supply Management

Whenever the public purse is about to get squeezed, people talk about collaboration, explains Professor Andrew Cox.

Nobody knows just how stringent future government cuts will be, but whatever the level of retrenchment, frontline services can only be protected if there is a significant improvement in the efficiency with which public services are provided.

This is where collaboration, particularly collaborative procurement, is touted as a cure-all. In the challenging times ahead, the role of procurement specialists will be key to the protection of services. Procurement professionals will be able to improve value for money from suppliers by aggregating demand and creating mutually beneficial collaborative, rather than arm’s-length adversarial, relationships.

This is all obvious stuff. At the Procurement for Housing Annual Conference in November 2009, I explained to public sector workers and social landlords that collaboration can improve value for money outcomes in the public sector, and specifically for social housing organisations. However, collaboration is not a panacea. And it is not always as easy to implement as it seems. 

Collaboration can also lead to serious problems for buyers post-contractually. This arises when practitioners do not fully understand the different types of collaboration that are possible, and when it is appropriate to use them.

Housing providers and public organisations that focus only on collaboration with other public agencies and suppliers can detract from the implementation of alternative procurement practices that could significantly improve value for money.

Public agencies need to understand a number of key points when implementing collaboration as part of a world-class approach to procurement management:

  • Collaboration can be horizontal (consortium buying), as well as vertical (between buyers, suppliers and supply chains).
  • Buyer-buyer collaboration (horizontal) reduces the cost of doing business by better sharing of information and best practice, combining demand, increasing transparency, distributing the costs of going to market and reducing supplier sales costs.
  • Horizontal buying is applicable no matter what type of relationship you develop with a supplier – collaborative or arm’s-length. 
  • The adoption of buyer-supplier collaboration (vertical) can be much more problematic than horizontal collaboration for the public sector and social landlords in particular.

Collaborative procurement is only applicable in certain circumstances and can result in poor value for money for social housing organisations that rely upon suppliers to share the same social ethos as them, when actually their drivers are often simply about maximising profit. 

It normally requires the commitment of extensive staff resources by buyers, and for long periods of time – something that is often difficult under national and European regulations, especially at a time of constrained budgets.

Ironically, while vertical collaboration can provide tremendous long-term improvements in value for money, it can also lead to serious lock-in and dependency risks with suppliers, if public sector buyers do not fully understand what they are doing over time. By contrast, in a recession short-term arm’s-length and adversarial supplier relationship management can be an extremely effective way of leveraging immediate value for money improvements.

So, collaboration is just another tool at the disposal of public sector procurement professionals. It must not become a universal remedy that hinders world-class procurement management in the sector.

Further information

For further details of world-class procurement standards and competencies, go to: www.iipsm.net

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